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LGT Navigator: Rising yields and commodity rally put tech stocks under pressure

February 23, 2021

The majority of global stock markets started the new week with losses, following on from the previous week's performance. Investors continue to focus on bond markets, where yields have recently risen sharply. Technology stocks are particularly affected and are now suffering from profit-taking in view of their high valuations. Meanwhile, the Bloomberg Commodity Index, which tracks the price development of 23 commodities, reached its highest level since March 2013.

Rising yields and commodity rally put tech stocks under pressure

At the beginning of the week, the upward trend in yields continued, after the yield on ten-year US government bonds climbed from 1.15% to over 1.3% in the course of last week. At the beginning of the year, US government bonds were only yielding around 0.9%. The rise in yields reflects market participants' expectations of a strong economic recovery and rising inflation. If this scenario comes true, debt interest rates are also likely to rise, which will hurt companies that rely on cheap credit in particular. But proud equity valuations could also come under pressure. Among the losers yesterday were mainly the technology giants Apple, Amazon, Microsoft, Netflix and Alphabet. Thus, the indices on the Nasdaq technology exchange fell sharply on Monday. The Nasdaq 100 slumped by -2.63% to 13'223.74 points.

However, there are also winners in the current market environment and these include financial stocks. The business model of banks is benefiting above all from a steeper yield curve, i.e. the difference between long-term and short-term interest rates. The US yield curve is currently as steep as it was last in 2016. Accordingly, financial stocks have been in demand in recent weeks and have performed significantly better than the S&P 500, which fell yesterday by -0.77% to 3'876.50 points, while the Dow Jones Industrial remained almost unchanged from Friday's close at 31'521.69 points (+0.09%).

After the correction in technology stocks on Wall Street, the Asian stock exchanges trended somewhat firmer this morning, with no trading in Japan due to the holiday. For Europe's stock exchanges, the futures markets this morning signal an opening slightly above the previous day's level. The focus of interest is primarily the speech of US Federal Reserve Chairman Jerome Powell this afternoon, starting from 16:00 (CET).

Commodity prices soaring – copper on record course

Hopes for an economic upswing are also reflected in the commodity markets. Thus, the Bloomberg Commodity Index, which tracks the price development of 23 commodities, climbed to its highest level since March 2013! The price of a barrel of US WTI crude oil exceeded the USD 60 mark, and North Sea Brent crude now costs around USD 66. Extremely cold temperatures in parts of the US are also currently causing prices to rise. Commodity experts therefore expect oil prices to continue to rise significantly in the coming months. WTI could rise to USD 72 in the third quarter, and a barrel of Brent could cost up to USD 75. In addition, the prospect of an economic recovery and thus an expansion of production is pushing up the prices of industrial metals. On the commodity exchange in London, a ton of copper cost USD 9270 on Monday - the metal is thus as expensive as it was last ten years ago. If the high continues, the previous record price of just under USD 10'200 from 2011 could be exceeded. Demand for nickel is also unbroken: prices have climbed to over USD 20'000 per ton for the first time in seven years.

Business climate in Germany brightens

Sentiment among German companies brightened in February despite the strict corona protection measures. The Ifo business climate index improved by 2.1 points to 92.4 points compared to the previous month, the Ifo Institute announced in Munich on Monday. This is the highest level since October. Analysts had only forecast an improvement to 90.5 points. The managers surveyed were more optimistic about both the current market situation and future prospects than at the beginning of the year. Sentiment has improved in all sectors. The business climate in manufacturing, which is less affected by the restrictions than retail and service providers, has even risen to its highest level in more than two years. For the first time, the tourism sector is also somewhat more confident about the future and is pinning its hopes on the upcoming vacation season. Nevertheless, the situation in the service sector remains difficult, the Ifo Institute explained.

German Bundesbank expects economic upturn in second quarter

The German economy should find its way back onto the recovery path in spring, the German Bundesbank expects. Falling infection numbers, widespread availability of vaccines and the easing of corona-related protective measures are expected to contribute to the economic upturn from the second quarter onwards, writes the central bank in its February monthly report. In the first quarter, however, the Bundesbank expects another noticeable decline in economic activity, triggered by the consequences of the pandemic. But there is no reason to fear that the slump will be as severe as in spring 2020, the report says. In 2020, Germany's gross domestic product contracted by -5% year-on-year.


Economic Indicators February 23

MEZ Country Indicator Last
10:00 IT Industry orders (December) +5.3%
11:00 EZ Consumer Prices (January, m/m) +0.3%
11:00 EZ Consumer Prices (January, y/y) +0.9%
11:00 EZ Core Consumer Prices (January, y/y) +1.4%
15:00 US S&P CaseShiller House Prices 20 biggest Cities (December, y/y) +9.1%
16:00 US Consumer Confidence (February) 89.3
16:00 US Fed President Powell Testamony on economy and outlook

Earnings Calendar February 23

Country Corporate Period
SZ SIG Combibloc Q4
GE Fresenius Q4


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